Watch Out for Worthless Gift Cards
Last updated November 15, 2024
Americans love giving and receiving gift cards: Sales are projected to reach $308 billion in 2024, according to Javelin Strategy & Research, a company that tracks the industry, up from $124 billion 10 years ago.
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Unfortunately, soaring sales are accompanied by gift card theft, an easy heist that carries little risk of getting caught. Stealing money from gift cards has become so lucrative that foreign fraudsters are now involved. U.S. law enforcement is focusing on criminal gangs in China that are targeting the U.S. gift card market (more on that later).
The most common way thieves drain money from gift cards is by shoplifting them from supermarkets and other retailers and then manipulating the package to steal the card information. The compromised cards are then placed back in stores, and the stolen information is added to a computer program that tracks the cards to see when they are activated.
“The minute you load money onto one of those cards, the crooks are notified, and they instantly drain it, sometimes even before you leave the store,” said Amy Nofziger, director of fraud victim support at the AARP Fraud Watch Network. “Unfortunately, the theft may not be discovered for weeks or even months after the purchase, when the recipient uses the card and it’s worthless.”
Formerly an occasional nuisance, gift card draining is now a common crime. A 2022 AARP Fraud Watch Network survey found that a quarter (23 percent) of American consumers have given or received gift cards that had no funds on them. The average loss was $140.
But no one really knows how much money is drained from gift cards each year. The National Association of Retailers doesn’t track these losses, and FBI data does not have a separate category for this crime.
Brett Johnson, a convicted identity thief turned security consultant, who committed gift card fraud in his younger days, told Checkbook he believes U.S. consumers are losing “billions of dollars” a year to this crime spree.
Signs of Tampering Not Always Obvious
Until recently, gift card draining involved package tampering, which made it possible to spot in some cases. That’s why the standard advice has been to look for these warning signs:
- Packaging that’s loose, damaged, or resealed; excess glue, ripples, or bubbles; and smeared printing.
- A barcode or PIN that’s exposed, scratched off, or covered with a sticker; a security sticker that’s skewed.
- The card surface has scratches or is altered.
While it’s still a good idea to check for these and other signs of tampering, it’s no longer a foolproof method of protecting yourself. Fraudsters have become skilled at disguising compromised cards.
Some criminals, including organized crime rings in China, use algorithms to figure out card numbers and passcodes without needing physical access to them. When cards are printed with numbers in sequential order, as is often done, it’s easy for these algorithms to deduce the numbers and the security code underneath the scratch-off labels, Johnson told Checkbook.
That’s apparently how thieves drained almost $100,000 from gift cards sold at various stores in the Seattle area last summer. In August, police in Lynnwood, Wash., arrested a woman believed to be the mastermind behind the scheme, which used numeric sequencing.
As court documents in this case explained, “Sequencing takes place when a subject obtains a gift card number, or numbers, and figures out the next logical gift card number in the sequence, hoping the next gift cards in the sequence have been legitimately purchased and have an available balance.”
Homeland Security Investigations (HSI) recently launched a major operation to “disrupt and dismantle Chinese organized crime groups engaged in gift card draining scams.” Chinese criminals “have been increasingly using sophisticated methods to tamper with gift cards and exploit online vulnerabilities,” HSI warned. The gift card fraud perpetrated by these groups against American consumers “can be attributed to losses in the hundreds of millions of dollars.”
Some Cards Are More Vulnerable
While any gift card can be compromised, security experts say criminals focus on high-volume ones from popular retailers such as Apple, Best Buy, Home Depot, Target, and Walmart.
For gift card thieves, cards to local restaurants, nail salons, or clothing stores, that can’t be used online, are not worth the effort.
Gift cards offered by Visa, Mastercard, and American Express are also popular with criminals because they can be used at many places, making them a simple way to launder money.
The Safer Way to Shop
It’s easy for a crook to steal gift cards because there’s rarely any security nearby. Why protect empty cards, the thinking goes? They’re not valuable until customers buy and load money onto them.
Shelley Hunter, a consumer advocate and gift card expert who’s been pushing to make gift cards more secure, told Checkbook she would only buy gift cards at the supermarket or drugstore if they were kept behind the counter where criminals couldn’t access them. She also recommends buying gift cards directly from the stores and merchants on your list. It eliminates the convenience of being able to buy those cards anywhere, but it reduces the risk of fraud.
Knowing the risks, I no longer buy gift cards from store racks. I send electronic gift cards that I buy from trusted retail websites. Obviously, nothing done on the internet is 100 percent safe, but I feel the risk of being robbed by digital pickpockets is lower this way.
Hunter is also a fan of e-gift cards, but she urges buyers to purchase directly from the real merchant’s website. Type in the URL to the site yourself; don’t trust social media ads promoting gift cards at steep discounts. These are often created by fraudsters trying to steer you to their bogus websites.
You might also want to buy cards from a trusted gift card website. In some cases, you may get them below face value. Hunter recommends these four websites that meet her certification standards for ease of use, security features and customer support: eGifter, Factor4, Giftly, and Ulta Beauty.
Other Steps to Take
If you buy physical gift cards, Hunter recommends preparing for the worst, should the card get drained.
Pay attention as the cashier activates the card, to make sure the number on the card (usually the last four digits) is what’s on the register display. Then, verify that the correct dollar amount and partial card number are on the sales receipt.
Wherever possible, Hunter suggests using both a loyalty card and a credit card. Both serve as “proof of purchase,” she said. Next, take a picture of the gift receipt along with the card (front and back) with your smartphone. You’ll give the original gift receipt to the recipient with the gift card.
As soon as you get home, visit the website for that card; register it, and check the balance. If you encounter a problem, report it immediately. With gift cards issued by Visa, Mastercard, and American Express, you can change the PIN online.
Red flag: Avoid websites that offer to check your gift card's balance. According to the BBB, these sites are designed to steal the money loaded on that card by using the number and security code you’re required to provide.
What to Do If You Get Burned
Once the money’s gone, it’s gone. And the store that sold you the card may not be willing to help.
In the AARP gift card survey, 84 percent of those who received an empty gift card tried to resolve the issue by calling the number on the card or speaking with a store manager. But more than half were told they could not get a refund or credit.
Even so, “it’s not always a lost cause,” said AARP’s Nofziger. Some stores will help, she said, so it’s worth asking, especially if you still have the proof of purchase.
If you paid for a drained card using a credit card, and the gift card company won’t provide a solution, dispute the transaction with your credit card issuer.
More Should Be Done
For years, gift card security has relied on customers or possibly careful cashiers to spot gift card tampering.
“This manual intervention is not enough,” Hunter said.
Faced with massive losses and unhappy customers, she believes much-needed security improvements may be on the horizon.
“I think the industry is finally to a point where we are acknowledging we have some technical solutions, and we need to use them,” she told Checkbook.
Until then, be careful!
More Information:
AARP: Watch out for Gift Card Scams
Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He has been protecting consumers for more than 40 years, having covered the consumer beat for CBS News, The Today Show, and NBCNews.com. You can also find him on Facebook, Twitter, and at ConsumerMan.com.